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(Alliance News) - Vodafone Group PLC has become the latest London listing to be targeted by an activist investor, lifting the telecommunications company's stock, though it still remains off its post-pandemic peak.
Financial news agency Bloomberg, citing people familiar with the matter, said Swedish activist investor Cevian Capital AB has bought into Vodafone. It has been in talks with the company for several months, in a bid to boost the FTSE 100 company's fortunes.
AJ Bell analyst Russ Mould commented: "While the FTSE 100 has been enjoying a comeback this year with a better performance than many other major markets globally, it is also home to numerous sleepy or mismanaged companies ripe for being shaken up by activist investors. We've already got campaigns to change GlaxoSmithKline, Shell, Unilever, Aviva and SSE, and there is also an activist investor on the shareholder register of Sainsbury's. Now it seems that Vodafone is the next FTSE 100 company set to be shaken up.
"Unlike most situations where an activist pops up on the shareholder register, Vodafone already has a plan in place to sharpen the focus of the business."
Mould noted Vodafone has spun-out its Vantage Towers, which housed its European towers business. Vodafone also has reset dividends to a "sustainable" level, Mould added.
However, these self-help measures have done little to boost its shares. Vodafone shares are 4.1% higher than they were this time last year, compared to a 15% gain for the wider FTSE 100. The stock is about 7% below where it was in early May, its best level since the onset of the pandemic.
Most of its 12-month gain was made Monday morning. Vodafone shares were up 3.1% on the day at 131.56 pence, the best performing blue-chip stock.
"The reshaping of Vodafone has yet to result in any meaningful re-rating by the market – the shares are no higher now than they were in 1998," Mould added.
"The debt burden which resulted from the Liberty Global cable deal in Europe, fierce competition in core mobile markets and a plunge in roaming business owing to the pandemic's impact on global travel all continue to weigh, as does a group structure which still really makes Vodafone look like an investment fund which just owns as collection of telecoms assets."
Vodafone completed the acquisition of Liberty Global's operations in Germany, Czech Republic, Hungary and Romania for an enterprise value of EUR18.4 billion back in late 2019.
"Looking at the classic list of activist strategies, Vodafone is the sort of name which might pop up on a hit list – terrible share price performance, unwieldy group structure and potential for strong cash generation," Mould concluded.
Bloomberg reported Vodafone could turn to measures including selling some operations, making stock buybacks, and boosting its presence in key markets, following the talks with Cevian.
Interactive Investor analyst Victoria Scholar commented: "Activist investors are becoming increasingly vocal within FTSE 100 companies, perhaps spurred on by one another, particularly on issues like ESG and executive pay. Vodafone is the latest in a series of FTSE 100 companies to have been targeted by an activist investor following on from Unilever, BT and GSK. Unless drastic action is taken to overhaul Vodafone, the stock looks set to continue to underperform the FTSE 100, at a time when the UK market is looking increasingly compelling from a valuation perspective, having underperformed other global indices since Brexit."
Cevian is not new to building up stakes in London-listed firms. Bloomberg noted it has previously bought into insurers Aviva PLC and RSA Insurance Group. It was an RSA investor when the insurer backed a GBP7.2 billion takeover bid from a two-headed consortium back in November 2020.
Cevian also is not new to working with telecommunication firms. Bloomberg reported it is currently pushing for changes at Ericsson AB.
The telecommunications sector has had a busy recent few months, with billionaire telecom tycoon Patrick Drahi's Altice lifting its stake in BT Group PLC to 18%, from 12% previously.
In addition, Telecom Italia Spa back in November said US private equity firm Kohlberg Kravis Roberts & Co LP made a "non-binding and indicative" takeover approach.
By Eric Cunha; ericcunha@alliancenews.com
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